The New Stagflation Decade

11 Sep

The New Stagflation Decade

If you’re old enough to remember the 1970s, then you remember the Stagflation Decade.

If you’re not old enough, ask your parent or grandparents about it.  

“Stagflation” is one of those made-up words, a portmanteau, as they are called, that combine two different words together to express something new.  Like “Brexit” to describe Britain exiting the European Union.  Or “sheeple,” combining sheep and people.

So stagflation married two descriptive terms for the economy together:  stagnation, referring to stagnant, low- or no-growth economic conditions; and inflation, used to describe a period of rising or even runaway price increases.

The funny thing is that they had to make up a word to describe those conditions together when they appeared in the 1970s.  There was no such word at the time because the big government economists of the day, the Keynesian spend-our-way-to-prosperity economist who were everywhere, believed that stagnation and inflation together was an economic impossibility.  

If the economy was stagnating, they believed, then the central bank would just print gobs of new money and – presto! – full employment.

So that’s what they did in the 1970s.  They printed money.  Boy, howdy, did they print money!  Prices took off.  And the economy stood still.  And began to shrink.

Despite the fact that inflation reached 12.3 percent in 1974, economic growth was negative that year and the next, while unemployment rose to 8.2 percent. 

“That’s impossible!” screamed the Keynesian big government economist.  “Print more money!”

And they did.

By 1979, the inflation rate was 13.3 percent.  

And a world-changing gold and silver market was the result.

Now, this may seem like ancient history for anyone who was too young to remember or wasn’t yet born.  But we aren’t here to discuss periods in history at random.  Our assignment is to help our friends and clients protect themselves, their families, and their wealth.

That’s why we want you to be on the lookout for the growing signs that this will be a new and much more severe stagflation decade.

And that means much higher gold and silver prices.

Here’s a chart that helps illustrate our point.  It covers the last 15 years, showing the growth in the money supply (M2) in green, and the growth in Federal Reserve assets.  That represents the total amount of things like bonds that the Fed has purchased with made-up, unbacked, freshly “printed” digital money.

In the above chart, you can see that the money supply (in green) has grown from about $7 trillion to more than $18 trillion over the period.  Fed assets have risen from less than a trillion dollars to $7 trillion.  

One more thing.  The shaded areas represent recessions, periods when the nation experienced negative economic growth.  The first shaded area is the Great Recession in the housing bubble calamity of the 2007-2009 period.  

The second shaded area is the depression we are in right now.

Despite our bankruptcies, businesses closing, unemployment, delinquent mortgages, and other payments that are in arrears – in other words, despite our stagnation – all that money-printing and money supply growth are driving consumer prices higher.  

And now the Fed has decided to raise its commitment to more inflation, just as prices have already started climbing.  The consumer price index increased 0.4% last month.  That’s after increase of 0.6% in both June and July.

And they said it couldn’t happen!   But it sure looks like we could be in a brand, new stagflation decade.  One much bigger than the one your grandparents remember.

That means that this gold and silver bull market will be much bigger as well.